Sebi Board Meeting Today: F&O Regulations, MF Lite, New Asset Class, Other Expectations

The Securities and Exchange Board of India’s (Sebi) board is going to meet on September 30. According to reports, the markets regulator is likely to discuss a range of issues, including measures to curb F&O losses, an asset class between mutual fund and portfolio management services (PMS), and the MF Lite. The meeting comes against the backdrop of allegations of conflict of interest against Sebi Chairperson Madhabi Puri Buch. Here’s everything you need to know:

Futures & Options Trading

Markets regulator Sebi is likely to announce measures to curb losses on futures & options, according to the reports. Among other steps, Sebi might increase the lot size to discourage small individual investors to enter into the F&O contracts.

Other measures might include limiting weekly options contracts to one index per exchange and higher margin requirements near expiry.

The Economic Survey 2023-24 said, “Derivatives trading holds the potential for outsized gains. Thus, it caters to humans’ gambling instincts and can augment income if profitable. These condiderations are likely driving active retail participation in derivative trading. However, globally, derivates trading loses money for the investors, for the most part.”

New Asset Class

The markets regulator is also likely to introduce the Mutual Funds Lite, a new asset class between mutual funds and portfolio management services. Currently, portfolio management services is a tailored investment service requiring a minimum investment amount of Rs 50 lakh, where mutual funds investment can be started with as low as Rs 100. The new asset class will cater to those in between, let’s say those having investment of Rs 10 lakh, Rs 15 lakh. Rs 20 lakh, etc.

Mutual Fund Lite

The government is expected to introduce the ‘MF Lite’. It will have a relaxed regulatory framework for the passively managed mutual fund (MF) schemes in a bid to reduce compliance requirements.

“The regulator is on the verge of introducing the MF Lite regulations and is open for suggestions on the same,” Sebi chairperson Madhabi Puri Buch said last week while addressing the annual general meeting of mutual fund industry lobby grouping Amfi.

Sebi in its consultation paper said that considering the lesser risk inherent in managing passively managed MF schemes, the proposed MF Lite intends to reduce the compliance requirement, foster innovation, encourage competition and promote ease of entry for the MFs interested in launching only passive schemes.

Passively managed MF schemes replicate an underlying index such as ETFs and index funds where portfolios of index funds can be easily tracked. Active fund schemes requires expert fund managers who define investment philosophy and select securities.

Other Likely Measures

A new classification for merchant bankers is proposed, separating them into two categories based on net worth. Existing firms will have a two-year transition period to comply with the new requirements.

According to Business Standard, while the allegations from Hindenburg Research and the Congress party may not be formally discussed, they are expected to be touched upon informally.

US-based short seller Hindenburg Research recently charged the Sebi chairperson Madhabi Buch of not being motivated enough to act on allegations against the Adani group due to conflict of interest.

Later, the Congress party also alleged that between 2017 and 2023, Buch, as a whole-time member and later as the SEBI chairperson, traded in listed securities worth Rs 36.9 crore.

Buch and her husband Dhaval Buch in a joint statement addressed issues raised by the opposition Congress over receiving payments from her previous employer the ICICI Bank while being a whole time member of the SEBI.

The Congress also claimed SEBI chairperson Madhabi Buch had a 99 per cent stake in a firm when it provided consultancy services to the Mahindra and Mahindra Group and her husband received Rs 4.78 crore as income from the conglomerate while she was adjudicating cases of the same group.

The Mahindra and Mahindra Group dismissed the allegations as “false and misleading in nature”. The group categorically stated that it had not at any point requested SEBI for any preferential treatment. “We maintain the highest standards of corporate governance,” a spokesperson of the Mahindra and Mahindra Group has said.